P&O Princess's plan to create the world's biggest cruise ship operator via a nil-premium merger with Royal Caribbean was dealt a blow yesterday when the Government referred the deal to competition regulators.
Patricia Hewitt, the Secretary of State for Trade and Industry, said the merger had raised sufficient competition concerns to justify further investigation. Ms Hewitt's advice followed an initial two-month inquiry by the Office of Fair Trading.
The move further highlighted the significant regulatory barriers that lie between Princess and its £4.8bn merger. It also refocused investors' attention on whether Princess's chief executive, Peter Ratcliffe, was right to reject outright a £3.5bn hostile takeover proposal from Carnival Corporation, the US cruise ship giant.
The referral weakens a key plank of Princess's defence against Carnival. Mr Ratcliffe has argued that shareholders should back the proposed merger because it posed less regulatory risk and was therefore more deliverable.
Micky Arison, the chief executive of Carnival, yesterday attacked Princess's refusal to meet to discuss Carnival's 502p-a-share bid. "[The] decision by the Secretary of State makes Princess's determination not to speak to us totally indefensible.... The board's advice to its shareholders not to speak to us raises significant questions about its credibility," he said.
The Department of Trade and Industry said the referral decision did not "in any way prejudge the question of whether or not the proposed merger would be against the public interest". The Competition Commission has until 20 May to conduct its investigation.
Alastair Gorrie, a competition partner at Coudert Brothers, the law firm, said prolonging the inquiry was proof the OFT had found fault with Princess's claim that cruising fell within the wider vacation market. He suggested the regulators might even have split the cruise market up into top-end and mid-range holidays. "But it's very borderline," he said.
Industry statistics suggest a Princess/Royal combination would give the pair a 30 per cent share of the UK cruise market – more than the 25 per cent threshold which warrants a further investigation according to a narrow market definition.
While the referral centres the spotlight on the uncertainty surrounding the merger, it does not affect the timing of a meeting for shareholders to vote on the deal, which is scheduled for 14 February. Princess's merger is also being looked at by US antitrust authorities. No decision is expected until the summer.
Both Princess and Royal Caribbean yesterday reiterated their belief that the merger would be cleared. Richard Fain, Royal's chairman and chief executive, said: "We have never taken regulatory approval for granted. This referral in no way detracts from our determination to complete the merger on the agreed timetable." Mr Ratcliffe said: "Notwithstanding this reference, we are confident that we will receive clearance once the Competition Commission has fully reviewed the substantive facts and issues."
Princess's shares were unchanged at 399p yesterday.
Investors said yesterday's setback could help Carnival to canvas support among shareholders for delaying the extraordinary meeting until both proposals had passed through the regulators.Reuse content